So-called housing starts fell 8.7% in February from the prior month to a seasonally adjusted annual rate of 1.162 million, the Commerce Department said Tuesday. Residential building permits, which can signal how much construction is in the pipeline, dropped 1.6% from January to an annual pace of 1.296 million last month.
Economists surveyed by The Wall Street Journal had expected a 1.6% drop for starts and a 2.6% decline for permits in February.
Housing-starts data are volatile from month to month and can be subject to large revisions. February’s 8.7% decline for starts came with a margin of error of 10.3 percentage points. Still, a sturdier gauge of housing starts shows home construction is softening. Starts were down 8.2% in the first two months of 2019 when compared with the same period a year earlier.
When breaking the figures down by building type, single-family home construction tanked 17% and permits for this property type were flat in February. Apartment building was up 23.5% and multifamily permits declined from January.
February’s starts report largely defies broader construction trends. In the longer run, single-family building has held near the highest levels since before the most recent recession, while multifamily construction eased because of a glut of apartment properties in certain metro areas.
The key ingredients for strong housing demand are in place. A gauge of layoffs across the country remains historically low, and wages are growing at the fastest pace in the current economic cycle.
Still, rising costs for builders, including growing wages for construction workers, pose challenges for some home builders attempting to construct lower-priced properties to meet demand. Other challenges include lack of available land and high zoning and regulatory standards in some parts of the country.
A gauge of U.S. home-builder confidence stabilized in March after increasing two months in a row, according to the National Association of Home Builders’s Housing Market Index. This survey showed sentiment falling throughout 2018. Lower mortgage rates, which lower the overall cost of buying a home for consumers, helped turn sentiment around in recent months.
The housing market contributes substantially to economic output, and a weak year for the sector lowered gross domestic product growth in each quarter during 2018.